SAN FRANCISCO — Stockton, Calif., said it will negotiate with 18 creditors that have interests above $5 million during mediation meant to help the city restructure its debts to avoid bankruptcy.
The participants include Wells Fargo Bank NA, the trustee for several outstanding bonds, and the California Public Employees Retirement System, the largest pension fund in the country.
Other stakeholders include city employee unions, Dexia Credit Local, Union Bank and the U.S. Department of Housing and Urban Development,
Anne Stausboll, CalPERS’ chief executive officer, said in a statement Thursday about the system’s participation in the mediation: “While we recognize the fiscal challenges that many cities and counties face, it is important to also recognize that employee pensions and benefits are just one of many factors that are involved in these tough budgetary and legal decisions.”
Stockton officials said all of the participants agreed to publicly identify themselves even though the mediation process is supposed to be confidential. The city did not disclose how much each creditor is owed.
The creditors include the two main insurers of Stockton’s bonds, National Public Finance Guarantee Corp. and Assured Guaranty Corp., which had already said they would participate.
National, a subsidiary of MBIA Inc., insures $224 million of debt issued by the city, $89 million of which is tied to Stockton’s general fund.
Assured Guaranty said it is exposed to $150 million net par of Stockton’s bond debt.
The announcement comes after the City Council voted on Feb. 28 to begin mediation with creditors under terms of a new California law, AB 506, designed to give financially stressed local governments a chance at staying out of bankruptcy.
Stockton, a city of 300,000 residents an hour and a half drive east of San Francisco, is trying to avoid becoming the largest city in the country to file for bankruptcy.
The city said it has started working with the creditors to start selecting a mediator, a process that should take up to 12 days, according to the law.
The selection of a mediator starts a 60-day clock on negotiations that can be extended by up to 90 days by a majority vote of creditors.
If the mediation fails, the city can still file for Chapter 9 bankruptcy, or at any time it could declare a fiscal emergency during a public hearing and start the bankruptcy.
The City Council voted Feb. 28 to suspend payments toward $110 million of general-fund-supported bonds through June 30, the end of the fiscal year.
Stockton had more than $702 million of bonds outstanding as of the end of June 2010, including debt issued for restricted enterprise funds such as water, sewer, and parking enterprise debt, according to city financial statements.
Stockton has received “super-downgrades” of its ratings by Moody’s Investors Service to Ba2 and Standard & Poor’s to “selective default.”
